Over the past 2 weeks we have fielded numerous enquiries from our clients with questions and concerns about how to approach lenders for hardship support relating to COVID19 and the impact this may have on their mortgages, rates, credit histories etc.
To ensure our clients get the most accurate advice, AXTON Finance have been in regular contact with the banks and lending institutions we work with and with whom all of our clients have mortgages.
In our earlier communications we noted that a hardship repayment holiday is not ‘interest free’ and that such a holiday may extend the term of the loan or the interest you pay over the life of the loan. As such, it is important to understand what this means for your long term, and that if you have some capacity to make repayments towards your loans, then it may serve you well to do so.
The encouraging fact to note is that all lenders have in place support for borrowers to receive repayment assistance.
The most important action anyone can take under these trying circumstances is to proactively communicate with your lender, and to do so before any repayments are delayed or missed.
Banks and lenders approach and support to hardship is evolving, and as we write this, most lenders are treating the conversion of a principle loan repayment to interest only as ‘credit critical’ (this means such a change to your loan contract will only be permitted through a full assessment via a loan application). There is some political push from the government towards the banks and lenders to simplify this process, however as it stands a full assessment is usually required.
What is useful to understand, however, is that in applying for and obtaining hardship assistance means whilst it is not necessary for you to make a repayment during the hardship period, you may be permitted to.
The upside here is that in remaining under a P&I agreement, you will be incurring interest at a lower rate (Interest only terms tend to be priced higher for risk). So you may effectively be getting interest only terms at a lower rate without actually needing to go through a full loan assessment (providing you meet the hardship criteria).
There is some inconsistency between lenders as to how they treat the repayment. Some lenders advise these payments will be available for the borrowers during and after the hardship period if they needed to redraw. Others have advised these are not. So it is very important to ask your lender what availability you will have to cash paid into your loan during or after a hardship period. They may even take the view that if you can make a repayment, you may not qualify for hardship...
New loan application, current applications…
Most lenders are quickly updating credit policies to accommodate risk associated with COVID19 and request additional information and explanation around job type/industry to identify is this may impact ability to repay in the near future. Some lenders are asking applicants to provide disclosures and confirmstaions along the following lines:
The COVID-19 crisis is causing significant social and economic disruption. Applicant(s) to advise how they foresee this affecting their current financial position (including income) and how they will financially navigate that affect. This approval is subject to the Lender understanding and acceptance of this affect.
Be proactive with your communication, ask for assistance before you miss a repayment;
Understand the impact and accessibility to any payment made during a repayment holiday;
If there was no loan conduct issues prior to COVID19, any hardship or repayment holidays granted as a result of COVID19 impacts will not effect your credit history;
Impact on Credit History
Borrowers who are granted a six-month deferral on loan repayments will not have their credit rating affected as a result of the holiday, so long as they were up to date with repayments prior to the economic impact of COVID-19.
“If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief,” explained ABA CEO Anna Bligh.
As always should you have any questions we are here to help - while we may be working remotely during this time please call the office on 03 9939 7576 and one of our team will be able to help you.
Take care out there!
James Hardiman I General Manager
Photo by Branimir Balogović on Unsplash